European shares slip for third session

* FTSEurofirst 300 down 0.4 pct, hits 2-month low

* All eyes on U.S. fiscal cliff talks

* Volatility index sends contrarian signal

* Despite headwinds, risks seen on the upside

By Blaise Robinson

PARIS, Nov 16 European stocks slipped further on
Friday as brewing worries over U.S. budget negotiations and the
continuing euro zone debt crisis unsettled some investors, with
banking stocks featuring among the top fallers.

The FTSEurofirst 300 index of top European shares
was down 0.4 percent at 1,074.12 points at 1247 GMT. The index,
which hit a two-month low earlier Friday, is on track to post a
weekly loss of 2 percent, its worst weekly performance in 8
weeks.

Investors fretted about how the U.S. government will avoid
stepping off the $600 billion 'fiscal cliff' of spending cuts
and tax rises which automatically kick in in the new year
without a political agreement on setting the budget. President
Barack Obama and congressional leaders are set to hold talks
later on Friday.

Investors fear that a deadlock in negotiations would
automatically trigger the spending cuts and tax hikes, which
could drag the U.S. economy back into recession.

But the despite the market's slide this week, many fund
managers remain positive on the longer-term outlook for European
equities.

"We're buyers of the dip," said Koen Maes, global head of
asset allocation at Dexia Asset Management, which has 79 billion
euros ($101 billion) under management.

"This correction is a good opportunity. It's time to cash in
the gains made in credit this year and move into riskier assets
such as euro zone equities. Risks premiums are still very
important while sovereign bond spreads have stabilised after a
sharp drop," he said.

After surging 27 percent between early June and
mid-September, the benchmark index started to lose steam, and
has lost 5.8 percent since then. But it managed to outperform
U.S. shares, with Wall Street's S&P 500 down 8.2 percent
since mid-September.

"Despite the retreat, the momentum remains very positive for
euro zone stocks, which have proved more resilient than U.S.
stocks in the past few weeks," Maes said.

Tech stocks bucked the trend, with SAP gaining 1.5
percent. The company's co-CEO said on Friday the group is ahead
of its plan to reach more than 20 billion euros in sales by
2015.

Greece was also in focus again on Friday, with nagging
concerns over the country's debt sustainability and a row
between euro zone governments and the IMF over how to make
Greece's huge debt manageable, blocking the release of 31
billion euros in loans that the country needs to stay afloat.

"We're waiting for a few triggers: a deal to avoid the
fiscal cliff which should come before Dec. 14, Spain's bailout
request, and a new tranche of aid for Greece before the end of
the month," Barclays France director Franklin Pichard said.

"The downside potential is limited on the market. We're just
waiting a bit before turning more aggressive," he said.

The VSTOXX, which measures the cost to protect stock holdings
against potential pull-backs as it usually moves in an opposite
direction to equities, has lost more than 12 percent in a week,
signalling that investors were warming up to risky assets such
as equities, pointing towards a potential rebound in the coming
days.